Hospital efficiency and transaction costs: A stochastic frontier approach

M Ludwig, W.N.J. Groot*, F Van Merode

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


The make-or-buy decision of organizations is an important issue in the transaction cost theory, but is usually not analyzed from an efficiency perspective. Hospitals frequently have to decide whether to outsource or not. The main question we address is: is the make-or-buy decision affected by the efficiency of hospitals? a one-stage stochastic cost frontier equation is estimated for dutch hospitals. The make-or-buy decisions of ten different hospital services are used as explanatory variables to explain efficiency of is found that for most services the make-or-buy decision is not related to efficiency. Kitchen services are an important exception to this. Large hospitals tend to outsource less, which is supported by efficiency reasons. For most hospital services, outsourcing does not significantly affect the efficiency of hospitals. The focus on the make-or-buy decision may therefore be less important than often assumed.
Original languageEnglish
Pages (from-to)61-67
JournalSocial Science & Medicine
Issue number1
Publication statusPublished - 1 Jan 2009

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